Prime Minister Abe has mounted a serious diplomatic initiative to have the Kuril Islands returned to Japanese sovereignty.
In a move that took Japanese officials by surprise, Putin publically proposed to Abe that the two sign peace treaty to end World War II.
Speaking at an economic conference in Russia's Far East, Putin suggested that Russian Federation and Japan sign the treaty this year and solve the territorial dispute later. They are administered by Russian Federation and claimed by Japan.
As Donald Trump continues to up the ante on a trade war, with the U.S. president recently threatening to place tariffs on all Chinese exports to the United States, Beijing is moving to further solidify its already-close partnership with Russian Federation. But Abe, who was sitting on the same stage, did not provide any response during the forum. "Let's conclude a peace agreement by year's end without any preconditions".
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The dispute between Russian Federation and Japan centers on the four southernmost islands in the Kuril chain which the Soviet Union occupied at the end of World War II in 1945 but are claimed by Japan.
Putin was also late for a December 2016 summit in Japan, arriving three hours later than scheduled.
Over the years, negotiations to reach a peace agreement have seen both friendly gestures and hardline statements.
The Russian leader said South Korea is a very important and promising partner for Russia in the Asia-Pacific region, and that he is satisfied by the developments made between the two countries.
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On Tuesday, Russia-China Investment Fund (RCIF) - a joint undertaking of the state-owned China Investment Corporation and Russian sovereign wealth fund - announced that a group of of Russian and Chinese businesses are considering 73 joint investment projects, with a cumulative value of more than $100 billion.
While Moscow has said the drills will not take place on the contested islands, Abe told Putin that Japan is "keeping a close eye on" them, according to Deputy Chief Cabinet Secretary Kotaro Nogami quoted by Kyodo.
Russian Federation and Japan did not sign a formal peace treaty after the end of WWII in 1945, and the absence of an agreement has strained relations ever since. "We have been negotiating for 70 years", Mr Putin said.
Experts have to "conduct a thorough study of the possible economic output" of the project, Abe said.
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The proposal means that resolving the bilateral issue on the northern territories would effectively be put aside and a conclusion of the peace treaty would happen first.